Japanese bond futures declined, completing a weekly drop, after benchmark yields near a seven- year low deterred investors and Treasuries slid yesterday. The yield advantage of 10-year U.S. government debt over benchmark Japanese bonds was near the highest in a month before data forecast to show improving U.S. consumer sentiment. Japan’s 30-year yields have gained 13 basis points since Oct. 5, when the Bank of Japan cut its key interest rate and announced the creation of a fund to buy government debt and other assets. “Investors can’t keep buying JGBs at current yield levels to secure profits, and negative external factors don’t help either,” said Shinji Hiramatsu, senior investment manager in Tokyo at Sompo Japan Asset Management Ltd., which oversees about 1.4 trillion yen ($17 billion). “Expectations for monetary easing would typically boost inflation prospects and push up long-term yields.” Ten-year bond futures for December delivery declined 0.08 to 143.84 at the 3 p.m. close of the Tokyo Stock Exchange. They lost 0.11 since Oct. 8, the first weekly slump in five. The 0.8 percent security due September 2020 was unchanged at 99.315 yen to yield at 0.875 percent as of 3:22 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield has risen two basis points this week after declining to 0.82 percent on Oct. 6, the lowest since July 2003. A basis point is 0.01 percentage point. The Thomson Reuters/University of Michigan’s preliminary index of consumer sentiment rose to 68.9 in October from 68.2 the previous month, according to the median estimate of economists compiled by Bloomberg. The report is due today. ‘Downside Risks’ Ten-year U.S. yields jumped 7.5 basis points to 2.5 percent yesterday. A 30-year debt auction drew a yield of 3.852 percent, higher than the average forecast of 3.831 percent in a Bloomberg News survey of six of the Federal Reserve’s 18 primary dealers. Fed Chairman Ben S. Bernanke is scheduled to speak today on monetary policy objectives and tools at a conference in Boston. The Fed will hold a policy meeting next month. Losses in Japan’s bonds were limited after the yen yesterday strengthened beyond 81 per dollar for the first time since April 1995 and the Bank of Japan today cut its economic assessment in three of the country’s nine regions, its first downgrade since April 2009. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated. BOJ Governor Masaaki Shirakawa today said it’s still necessary to “pay attention to the economy’s downside risks.” The central bank “stands ready to take appropriate policy action, while carefully examining the outlook for the economy and prices,” he said. “There are few of those who think the central bank will avoid expanding easing measures,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc. “We can’t say 10-year yields have already bottomed out.” To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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